Bubble Fears Emerge As Experts Predict Appreciation Above 5%

SEATTLE—More than 100 forecasters said they expect the Zillow Home Value Index to end 2013 up an average of 5.4% year-over-year, and most expressed some fears the Federal Reserve could be inflating a new housing bubble, according to the latest Zillow Home Price Expectations Survey. The survey of 105 economists, real estate experts and investment and market strategists was sponsored by leading real estate information marketplace Zillow, Inc. and is conducted quarterly by Pulsenomics LLC. Panelists said they expected median U.S. home values to rise to $165,280, on average, by the end of 2013. At the end of 2012, the U.S. Zillow Home Value Index stood at $156,800. In the last survey, conducted in late February and early March, respondents said they expected average home value growth of just 4.6% in 2013. Looking forward, respondents predicted average home value appreciation of 4.4% in 2014, up from prior expectations of 4.2%. But while panelists were more bullish on near-term home value appreciation this year and into 2014, their expectations for nationwide home value growth in 2015, 2016 and 2017 were slightly more pessimistic than in prior surveys. On average, panelists said they expect annual home value growth between 3.5% and 3.7% from 2015 through 2017, down modestly from previously expressed expectations in the 3.6 percent to 3.8% range. Cumulatively, survey respondents predicted home values to rise 22.3%, on average, through 2017. “The panel’s expectations of near-term home value appreciation remaining above historic norms are consistent with a market struggling to satisfy strong demand from buyers attracted by rock-bottom interest rates and improving economic conditions,” said Zillow chief economist Stan Humphries. “But looking further out, that appreciation will have to moderate as interest rates rise, or else homes that seem affordable today – despite rapidly rising values – are going to look very expensive relative to people’s incomes as it gets more costly to finance a home. How the Federal Reserve handles the eventual winding down of its policy of quantitative easing will be critical in determining if the current period of rapid appreciation is a benign bounce off the bottom, or a more dangerous bubble being re-inflated.”